9911796707
TMI Blog2022 (6) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... Industrial Enterprises Pvt. Ltd. giving rise to the long term capital gain which was taxable in the hands of the assessee in AY 2012-13. The assessee duly declared such capital gain in his return of income filed for AY 2012-13 and although the learned DR has raised certain questions relating to the computation of such capital gain as well as the admissibility of deduction claimed under Section 54B of the Act at the time of hearing before us, it is observed that the learned CIT(A) in his impugned order has given direction to the Assessing Officer to examine the computation of income from capital gains offered on the sale of land by the assessee for its correctness or otherwise in AY 2012-13 in the light of observations made by him in his impugned order. As such, keeping in view all the facts of the case and having regard to the contentions raised by the learned representatives of both the sides as discussed above, we are of the view that there was no valid transfer of land in question by the assessee to the partnership firm of M/s. Vallabh Dvelopers in the year under consideration giving rise to any capital gain and the transfer of the said land having validly taken place only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sold to Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. on 13.05.2011 for a total consideration of Rs.21,11,00,000/- and his share in the said land was only 30%. The assessee accordingly agreed to offer the capital gain arising from the said transaction in his return of income for the AY 2012-13. It was also submitted by the assessee that the remaining 70% of the share in the said land was belonging to one Shri Mukesh Gupta as clearly reflected in banakhat executed on 17.10.2007. It was further submitted by the assessee that the land in question was never converted as stock-in-trade and introduced as capital contribution in the firm of M/s. Vallabh Developers. It was contended that M/s. Vallabh Developers had only nominal existence and term of the partnership deed dated 18.03.2010 was never given any effect. It was submitted that the transfer of immovable property exceeding the value of Rs.2000/- could be made only by a registered conveyance deed as per the Transfer of Property Act. It was also pointed out that the land in question was an agricultural land as on 18.03.2010 and it was converted into non-agricultural land only on 11.01.2011. It was submitted that the partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital of the loanee namely; Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. and his capital account will be credited accordingly by Rs.1,05,00,000/-. Thus, the net effect of this agreement was that the assessee's capital account stands credited by Rs.22,41,00,000/- and stands debited by Rs.1,05,00,000/- and corresponding credit of Rs.1,05,00,000/- is to be given in the capital account of Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. This partnership deed is not merely a Partnership deed executed on paper but the assessee has received Rs. 1,05,00,000/- from Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. and the said amount was deposited in his Bank account with Bank of Baroda on 18/03/2010. In furtherance of the Partnership Deed, the assessee has given Power of Attorney in favour of one of the Director of Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. Shn Bhupesh Bhogilal Amlani in respect of land at Survey No.86 as on 19/03/2010. This Power of Attorney was notarized before some B.M. Patel, a Public notary vide registration No.3675. Simultaneously, as on 19/03/2010, this Power of Attorney document was registered before the Sub Registrar, Baroda vide Registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .9 of his order as under: 4.8.1 Thus, in light of facts of the case of the assessee and provisions of Sec.2(14), Sec.2(47) and Sec.45 of the Income tax Act, the issue of chargeability of income arising out of short term capital gain came up for consideration. Sec. 2(14) of the Act defines the term Capital Asset . Undisputedly, the land at Survey No.86 was a Capital Asset. Sec.2(47) defines the term Transfer and it covers in its scope and ambit transfer of such capital asset where the asset is converted by the owner thereof into, or is treated by him as, stock in trade of a business carried on by him, such conversion or treatment are treated as transfer within the Income tax Act, Now Sec.45 of the Act stipulates that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to Income tax under the head Capital gains and shall Be deemed to be the income of the previous year in which the transfer took place. If all these provisions of the Income tax Act are applied to the facts of the case of the assessee, undisputedly, the assessee has purchased the land as sole purchaser as on 18/03/2010, has entered into partnershi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution of the capital asset or transfer of capital asset is to be considered and evaluated in terms of definition of transfer as given in the Income tax Act and not in any other Act including the Transfer of Property Act. In this connection, it is pertinent to note here that even prior to amendment in Sec.2(47) / 45 i.e. term Transfer / chargeability of capital gains, in relation to conversion of capital asset into stock in trade, any contribution of capital asset by the assessee into the firm were held to be the transfer. In the case of CIT V/s. Kartikeya V. Sarabhai (131 ITR 42), the Hon'ble Gujarat High Court has held that, where a property or asset belonging to an assessee is brought in and introduced by him into a firm in which he becomes or is a partner, the property in question thenceforward belong to the firm in view of Sec. 14 of the Partnership Act, 1932. In such a case, the erstwhile title of the partner in such property thereby stands extinguished resulting in a transfer. This decision of the Hon ble Gujarat High Court came up for appeal before the Hon'ble Supreme Court in the case of Sunil Siddharthbhai V/s. CIT (156 ITR 509) wherein the Hon ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 The third contention of the assessee with regards to the agricultural land can be transferred only to an Agriculturist and as on 18/03/2010, the land was agricultural land and was converted into non-agricultural land only on 11/01/2011, etc. I found no force therein. As regards the agricultural land also, there is specific definition under the Income tax Act. Sec.2(14) of the Income tax Act defines the term Capital asset as property of any kind, held by an assessee whether or not connected with his business or profession but does not include, agricultural land in India, not being land situate in any area which is comprised within the jurisdiction of a Municipality which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year. In the instant case of the assessee, under the Income tax Act, the land at Survey No.86 was situated well within the boundaries of the Baroda city as on the first day of the previous year i.e. F.Y.2009-10. It is pertinent- to mention here that the land is situated just opposite Income tax Office at Baroda. Therefore, the same was not an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transfer exigible to the capital gains tax in the relevant previous year. In the instant case of the assessee, such transfer within the meaning of Sec.2(47) r.w.s. 45 arose and the assessee was liable to capital gains tax irrespective of any subsequent transactions assessee might have entered into. Thus, there is no force in this contention of the assessee also and the same is accordingly rejected. 5. On the basis of the above observations/findings recorded by him, the Assessing Officer held that the land in question at Survey No.86 was entirely owned by the assessee and the same was transferred to the partnership firm in terms of partnership deed dated 18.03.2010 as stock-in-trade for a value of Rs.22,41,00,000/-. He accordingly treated the said value as the sale consideration and after deducting cost of acquisition to the assessee amounting to Rs.17,76,06,000/- and stamp duty paid at the time of transfer of land in the name of the assessee amounting to Rs.1,04,78,760/-, he worked out a short term capital gain chargeable to tax in the hands of the assessee for the year under consideration at Rs.3,60,15,240/-. Accordingly, addition to that extent on account of short term c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of land to the appellant and the firm Vallabh Developers, this agreement does not have any other object. In view of the above, the entire agreement for the transfer of land by the appellant to the firm Vallabh Developers was a void contract. 6.2 It is seen that the said firm did not carry out any activities at all and the firm was dissolved on 13-05-2011. Further there is no registered conveyance deed for transferring the land by the appellant to the firm, which is legally required in case of transfer of any property exceeding Rs.2,000/- as per the provisions of Transfer of Property Act. In the absence of registered conveyance deed executed, no right in property got transferred within the meaning of section 45 of the IT Act. Mere grant of permissive right to build on the plot would not amount to a transfer of capital asset. 6.3 From the submissions made by the AR of the appellant during the course of appellate proceedings, it has been found that although a partnership firm was formed on 18-3-2010, the same could not be considered as a valid partnership as it involved acts which were not legally permitted in Gujarat. No business activity was carried out by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission on records, though it was mentioned in the partnership deed that the assessee had converted the land in question into stock in trade and introduced the same into the partnership firm of M/s Vallabh Developers, in reality no legal effect to such transaction has been given, because the firm could not have legally acquired agricultural land and consequently since the land in question was not vested in the said partnership firm, the ownership of the said land always remained with the appellant assessee right from the day of purchase on 18.08.2010 till it was converted into a non- agricultural land. 6.6 At best, it can be said that the land became the property of the firm only on.01.2011 when it was converted into non-agricultural land and could have been transferred to the firm. In this case, no such act was performed on 11.1.2011. No evidence has been brought on record by the AO of any such event on 11.1.2011. As already discussed earlier the partnership deed in this case is ab intio void because it is for the constitution of the firm for acquiring agricultural land and its subsequent development later on when the firm could not have acquired the agricultural land at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore is not justified in computing short term capital gain at Rs. 3,60,86,930/- in the current assessment year since there was no transfer of any capital asset in A.Y. 2010-11. The addition made by the AO on account of short term capital gain in A.Y. 2010-11 is not justified. The addition made is deleted. Aggrieved by the order of learned CIT(A), the Revenue has preferred this appeal before the Tribunal. 8. The learned Departmental Representative strongly relied on the order of the Assessing Officer in support of the Revenue s case on the issue under consideration. He submitted that the assessee had introduced the agricultural land in question as stock-in-trade in the books of the partnership firm as per the partnership deed dated 18.03.2010 and there being transfer of the said land by the assessee to the partnership firm within the meaning of Section 2(47) r.w.s. 45(3) of the Act, the capital gain arising from the said transfer was chargeable to tax in the hands of the assessee in the year under consideration as rightly held by the Assessing Officer. He also submitted that the said transfer, however, is held to be null and void ab initio by the learned CIT(A) vide his impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the provisions of Sections 45(2) and 45(3) of the Act thus were not applicable in the facts of the present case; and, since the land was finally transferred by the assessee to M/s Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. only on 12.05.2011, the capital gain arising from the said transfer was chargeable to tax in the hands of the assessee for AY 2012-13 and the same was duly declared by the assessee in the return of income filed for AY 2012-13. 10. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the land in question acquired by the assessee on 18.03.2010 was admittedly an agricultural land on the date of acquisition i.e. 18.03.2010. Although the said land was claimed to be acquired by the assessee jointly with one Shri Mukesh Gupta, this claim of the assessee is not found acceptable by the learned CIT(A) vide his impugned order as the name of Shri Mukesh Gupta did not appear in the conveyance deed executed on 18.03.2010 whereby the land in question was acquired by the assessee in his individual capacity. On 18.03.2010 itself, the assessee had entered into a partnership firm in the name and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1972, and taking note of the same, it was held by the Hon ble Gujarat High Court that as there was no sale transaction in the eye of law, there could be no capital gain arising out of a null and void transfer of land. In our opinion, the ratio of this decision of Hon ble Gujarat High court is squarely applicable in the facts of the present case; and, respectfully following the same, we uphold the impugned order of the learned CIT(A) holding that the transfer of agricultural land by the assessee to the partnership firm of M/s. Vallabh Developers by virtue of partnership deed dated 18.03.2010 being null and void ab initio, it could not give rise to any capital gain which is chargeable to tax in the hands of the assessee in the year under consideration. 12. It is pertinent to note that the land in question remained to be an agricultural land till 11.01.2011 when it was converted into non-agricultural land and the same was transferred by the assessee in his individual capacity to M/s Bhogilal Odhavji Industrial Enterprises Pvt. Ltd. by a registered conveyance deed on 12.05.2011. The land in question thus was never transferred by the assessee validly to the partnership firm of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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